Students still stuck in murky loan search

College financial aid officers said the U.S. Senate missed an opportunity to protect students against risky private loans.

After the Senate axed an amendment to the financial reform bill that would have required universities to certify private loans, students will keep sifting through confusing and often misunderstood options when deciding how to pay for college.

Each year, private loan lenders send students and their families pages of confusing loan documents, said Shirley Ort, director of the Office of Scholarships and Student Aid at UNC-Chapel Hill.

Many times, students take out expensive private loans, unaware that institutional and federal grants and low-cost federal loans are available to them, she said.

The U.S. House initially passed the measure, but it was taken out in a joint committee meeting last week.

“I’m pleased that the House has passed it and disappointed the Senate hasn’t,” Ort said. “I’m suspicious when people resist regulations when they would help students and families.”

Under the measure, schools would have assessed single private loans and not individual lenders. They would also verify the enrollment status of the student and assess the ability of the student to pay back the loans. Finally, university financial aid officers would notify the student of the availability of grants and low-cost federal loans.

Currently, students must verify the same information that a more skilled university employee would have done.

While the government requires lenders to inform borrowers of their loan options, critics of self-certification say cheaper alternatives get lost in the shuffle and students can’t afford to let that happen.

“These loans are going to be with students until death or they’re seriously disabled,” said Haley Chitty, spokesman for the National Association of Student Financial Aid Administrators.

In the wake of the financial crisis, it’s important to remember the potentially long-term effects of taking out private loans, he said.

Chitty said most students aren’t aware that private loan debt isn’t forgiven in bankruptcy court and could affect their future financial health through wage reductions.

But school certification could benefit people in addition to student borrowers, Chitty said. A few organizations representing private loan lenders teamed up with organizations like the financial aid association to lobby for the bill’s passage.

“From a lender’s perspective, they’re making sure they don’t’ have a lot of loans that can’t be repaid,” Chitty said.

“If the student defaults, they lose out on that money,” he said. “Any additional steps that can be taken to reduce those defaults will help their bottom line.”

Although the potential for negative effects exist with private loan borrowing, students shouldn’t feel bad about having to take out private loans, Ort said.

“When students have maximized all other sources, it is an excellent source of capital,” Ort said.

“It’s not bad by any respect. It’s just bad if they’re enticed to take those loans before the ones that could be more beneficial to them.”

Contact the State & National Editor at stntdesk@unc.edu.